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Major trade developments follow G20 meeting in Argentina

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December 2018

Overview

Two unexpected developments from the G20 meeting in Argentina this weekend have caused a shift in the dynamics of US trade policy. The first was a 90-day pause in escalation of rising trade barriers between China and the United States, accompanied by reported commitments from China to begin importing more from the United States and to negotiate a reduction in state industrial protection. The second was President Trump’s signalling his intention to withdraw from the North American Free Trade Agreement (NAFTA) after signing the new United-States-Mexico-Canada agreement (USMCA) in order to pressure Congress to ratify the new deal.

The takeaway

President Trump's signaling his intention to withdraw from NAFTA increases the pressure on Congress to ratify the new USMCA. Disagreements with Congressional Democrats over the new arrangement means that ratification of the USMCA remains a key source of uncertainty for businesses in 2019. Although many analysts believe that both parties in Congress ultimately will decide that their constituents are better of with USMCA than without NAFTA - the choice the president is offering - Democrats in particular are likely to attempt to make their support for the deal contingent either on changes to the USMCA or to domestic law to achieve better protection for trade-affected workers.

The temporary truce in the escalating US-China trade war will provide relief from growing economic strains being experienced in both countries, and create room for a negotiated solution before further tariff escalation would occur. Still, the issues identified are of such a scale and are so central to the Chinese economic growth model that a rapid resolution of the American concerns would seem unlikely.